Book Excerpt

Book Excerpt: Trade-Off

Once in a while, a huge, sweeping innovation creates a strategic inflection point that entirely changes an industry. Digital cameras had that kind of impact on the consumer film industry. Personal computers did the same to the mainframe computer business. But such innovation is rare.

There is a more nuanced and common form of innovation that fits into the fidelity/convenience swap—the trade-off between the fidelity of an experience and its convenience—and it's more like the invention of a feature that gives an edge to an age-old product. Consider the Coors Light "cold activated" label. It's pretty hard to differentiate midprice beer. Coors thought it would try to add a little fidelity in 2008 by making a label that changes color when the beer inside gets cold. (Hard to know how big a role the added fidelity played in getting people to buy Coors Light instead of another beer, but Coors Light has become Coors's best-selling brand.)

Most companies are not the super-fidelity leader nor the super-convenience powerhouse. Competitors tend to cluster around each other in the same area on a fidelity/convenience chart. To gain an edge, these companies have to decide whether to move up a notch in terms of fidelity or down a notch in terms of convenience. Some find imaginative ways to add features or quality for the same price or to keep pace with existing features and quality and drop the price. Small moves can bring small victories. Truly creative ideas, on the other hand, can change the dynamics of a market. This can happen in fast-changing industries, such as computers, or in mature, seemingly static sectors—like vacuum cleaners.

Dreaming of Clean Floors

Colin Angle never thought he'd be in the vacuum cleaner business. As an undergrad at the Massachusetts Institute of Technology in 1988, he got involved with the university's famous Artificial Intelligence (AI) Lab, run by one of the foremost thinkers about robotics, Rodney Brooks. A couple of years later, Angle, Brooks, and another student from the lab, Helen Greiner, started a company to design and sell commercial robots. They didn't yet know what those robots would do, but Angle said he kept getting hints. "I could bet that if I [were] introduced to someone who was not a techie, nearly every time they'd say, 'When are you going to make a robot to clean my floors?'"

Angle would smile and nod, while the company—eventually named iRobot—worked on robots that could find underwater mines and did other dangerous things for police and the military. Two projects changed the company's course. One was a partnership with S.C. Johnson to make a high-priced industrial floor-cleaning robot. The other was a deal with Hasbro to put artificial intelligence into a doll called My Real Baby—a partnership that taught iRobot about the challenges of low-cost manufacturing. Between the two, Angle started thinking about all those requests for a floor-cleaning consumer robot—and decided iRobot should make a robot vacuum that cost $200.

The price point was important. The folks at iRobot didn't want to make an expensive toy that happened to clean floors; they wanted to make a competitive vacuum cleaner that could clean floors by itself. In the vacuum-cleaner market in the 2000s, you'd find a cluster of simple models that cost around $50 or $60, and another cluster of more robust models that cost $150 to $200. Angle wanted to compete against the robust models, matching their fidelity. In other words, he wanted his $200 robot vacuum to clean floors just as well as a $200 traditional vacuum. For decades, the cluster of $150 to $200 vacuums jostled with each other in a rather small range of the sector's fidelity/convenience trade-off. Some lowered prices a bit to compete on convenience. Others added an extra nozzle here or a control there to differentiate on fidelity. But you didn't find many bold leaps in the vacuum-cleaner market. Most people who had a 15-year-old vacuum didn't feel they were missing much.

There's an old cliché in business that people don't buy a quarter-inch drill—they buy a quarter-inch hole. The drill happens to be the best means to an end, but if there were a better means, people would buy it. They don't give a hoot about the drill. They want the hole it makes. The same kind of saying can apply to vacuum cleaners. People don't buy a vacuum cleaner—they buy a clean floor. But for decades the only way to get a clean floor had been to push a vacuum cleaner over it.

Watch the Roomba Do Its Job

In the fall of 2002, iRobot introduced the Roomba vacuum cleaner. For the first time in ages, someone had come up with an innovative way to get a clean floor—a leap in convenience. The round, low Roomba looked more like a cross between a bathroom scale and a Belgian waffle iron than a traditional vacuum. It came armed with a computer, sensors, and AI that could help it figure out the size and shape of a room and how to make sure every inch got cleaned. It worked entirely on its own—you'd set the Roomba down on a floor, turn it on, and it would beep and whir and do the vacuuming job with no human intervention. In marketing campaigns, the company talked up Roomba's suction power and array of tiny brushes, claiming it would do as good a job as any vacuum in its price range. The company was trying to enter the $200 vacuum-cleaner market at about the same fidelity as its competitors, but with a significant jump in convenience. Buy a Roomba, the pitch went, and you'll get the same clean floor in a much easier way for the same cost.

That 2002 holiday season—while the economy was muted by the tech bust and the Sept. 11, 2001, terrorist attacks—Roomba took off. Within two years, iRobot sold 2 million Roomba vacuums. That's from a standing start, with no experience selling to retailers, no distribution channel, and zero brand recognition. The company brought an innovation in convenience into a mature sector—and used it to win customers from the cluster of competitors.

Now iRobot plans to develop robots to do other kinds of housework. "If we can get that magical value-vs.-cost equation as good or better than the current situation, we will build that product," Angle said. "We believe many tasks within the home are ripe for automation." In the future, iRobot's formula will be to match conventional products on fidelity and cost and then use robotics to gain the upper hand in convenience.

Business bookshelves are filled with titles about innovation, and often they're about how companies can come up with cool new ideas. The fidelity/convenience swap is a way to put those ideas in context and see what they might do for a product or service in an overall marketplace.

It can also help a company see why and how competitors are putting on pressure and facilitate ideas about how to respond. Is the competitive pressure coming from the convenience side or the fidelity side? And what is the best response? Do you fight convenience with even greater convenience? Or by moving up in fidelity? The answer can vary depending on the brand, the industry, and surrounding conditions. Analyzing the fidelity/convenience trade-offs can help tease out options.